Saving Private Flipkart

Flipkart is in the middle of a crisis of its own making—stalled growth compounded by management churn and the imminent possibility that it will cede the top slot to Amazon. But it’s not too late to change its strategy.

More on This: Haresh Chawla debunksMorgan Stanley's data and forecasts as well as other myths surrounding India's ecommerce market

“Picture a girl who took a nosedive from the ugly tree and hit every branch on the way down.” — Private James Ryan in Steven Spielberg's epicmovie ‘Saving Private Ryan’

Mark-downs and downrounds (where investors buy a company’s stock at a lower valuation than in previous rounds of funding) punctuate every discussion about Flipkart and the future of Indian e-commerce firms. Too much time is spent discussing Flipkart’s valuation. Is it worth $5 billion or $15 billion?

But everybody is barking up the wrong tree. Flipkart is in the middle of a storm of its own making: It is faced with a significant management churn at the top. For a company that pioneered e-commerce in the country, growth has virtually stalled since the middle of last year and the leadership team hasn’t figured out a way to kick-start sales. Its innovation engine isn’t firing. In e-commerce lingo, the gross merchandise volume (GMV) sold over a given period of time has not grown substantially. In the offline world, it is the equivalent of saying, the sales or revenue numbers aren’t growing. And this, for the e-commerce pioneer that until now grew its GMV by over 200% per annum for the past three years. The very culture that made Flipkart a runaway success in the first phase of its existence is now hindering its progress.

Sure, as things are, Flipkart is the market leader. But Amazon is snipping at its heels and Flipkart has no clue which way to go.

Flipkart is the market leader. But Amazon is snipping at its heels and Flipkart has no clue which way to go.

Eighteen months ago Flipkart was the toast of the Indian internet market and could do no wrong. How did things come to such a pass?

Over half of Flipkart’s GMV comes from selling smartphones—just the Moto series from Motorola is estimated to be worth half a billion dollars. Flipkart focused on just that to the exclusion of everything else. Amazon is now attacking this Achilles heel and is just months away from beating Flipkart to the No 1 position.

The pecking order in our e-commerce market is set to change in the next few months. Permanently.

The ignominy of squandering its first mover advantage to Amazon will only heighten the crisis brewing inside. And it most likely will force Flipkart’s investors to look for make-or-break solutions.

“If your attack is going too well, you may have walked into an ambush.”

— Infantry Journal

A tale of unforced errors

Try this. Borrow another smartphone and open up the Flipkart and Amazon apps simultaneously. Spend a few minutes tinkering with them. You’ll see how Flipkart fumbles. The search is poor and the mobile site and app experiences are non-intuitive. Look at the personalization and recommendations and you will see how users get a sub-optimal experience. Dig deeper for an off-beat item and chances are you won’t find it on Flipkart.

I recently bought a GoPro camera and wasn’t sure which model to buy. The reviews and Q&A by Indian consumers on Amazon were leagues ahead of the ones on Flipkart and the decision where to buy from was obvious. Do this for a household appliance and you’ll see that the difference on selection and information is stark—Amazon surpasses Flipkart by a mile.

I am sure everyone at Flipkart knows that this gap exists but the firm ignored it and was solely focused on pushing deals. Why?

GMV-instilled myopia: Call in a team of sharp youngsters, give them a few hundred million dollars and tell them that GMV is your holy grail. Every other metric is irrelevant. And what do you get? Decisions that drive GMV. Every smartphone transaction is worth 10 times or more than the average e-commerce transaction size. It makes growing GMV easy.

So Flipkart sells smartphones by funding such deep discounts that even neighbourhood mobile shops buy from them as against sourcing them directly from the manufacturer. For example, Flipkart funds a 20% discount beyond the wholesale price in the case of Micromax. Now, if you have a valuation round coming up, sign up a few exclusive smartphone deals, pump in discounts and sell a few million smartphones. And you can claim that you will hit $10 billion faster than anyone else. Incidentally, Flipkart fell short of that number by just $5 billion, as Mint reported in this roundup of missed targets by e-commerce firms.

Fact of the matter is, consumers come in to buy these smartphones for discounted prices and little else. The result of this smartphone-will-give-me-easy-GMV-mania is that—not surprisingly—other categories have suffered as has the product experience.

Missed buses: Then there was the distraction created by its proposed app-only strategy last year—it decided to operate only through its mobile app from September, prompting intense debate within the company. It soon abandoned that plan.

Outsiders will always wonder what prompted the decision to go app-only when neither the company nor the market was ready for it. And having taken such a consumer-unfriendly decision, Flipkart (and Myntra) defended it like a petulant child. Sure, smartphones are the primary browsing devices in India but a significant set of consumers prefers to conclude their transactions on desktops at work or on a mobile browser. Why walk away from them and force them to download an app?

Wonder what prompted the decision to go app-only when neither the company nor the market was ready for it.

Flipkart had a head-start as well in creating the gold-standard on payments with Payzippy. But it pulled the plug on that even as it announced that mobile payments was core to its strategy and invested instead in ngpay in 2014—and nothing has come of it. The company has struggled to create a wallet or even a basic loyalty programme.

The firm took its eyes off the innovation engine. The biggest innovation in the last few years was Ping, a feature where consumers can buy together online. The media lapped it up. Flipkart seriously expected our attention-deficit audience to halt mid-way through a transaction and invite a friend to buy—isn’t this Facebook-like feature 10 years too late? On the other hand a simple feature that invites you to share your purchase on social media was ignored.

Acquisitions yet to pay off? Myntra came with a great team and supplemented an important category for Flipkart. Apparel brings in the highest gross margins in e-commerce and can make a huge impact on overall profitability. However, between the leadership transiting to Flipkart, the controversial app-only decision and an excessive focus on private labels, Myntra now loses money hand-over-fist and has to introspect over what it stands for as it moves away from high fashion to adding towels and bedcovers.

One big challenge Myntra has to grapple with is permanently discounted merchandise. If it doesn’t offer deep discounts, Indian consumers will switch back to offline retailers, which are now on sale for half the year. Add to this the returns, and cancellations that impose a huge penalty on the online apparel business in India.

To find its way back to profitability, Myntra is betting on private labels as prime differentiators and profit drivers. However, private labels require merchandising skills and not marketplace skills. It is yet to demonstrate the positives of owning a clutch of sub-scale private labels (10 at last count). Every online fashion retailer wants use the ASOS playbook (ASOS is considered one of the more successful apparel e-commerce players in the world). But if you look carefully, ASOS has built a monolithic label versus the spray-and-pray private labels at Myntra. It will be interesting to see how it can support as many of them.

The saving grace for Myntra is that Amazon has scaled back its fashion offerings after making some very extravagant moves on the back of sponsoring the India Fashion Week. Jabong is in the doldrums, and awaits a white knight.

Spin off eKart: Sure, Flipkart has built a solid logistics business. Spinning it off appears to be a sound move. eKart can show immediate profitability and overlaying third-party businesses allows it to defray its costs over larger volumes, giving Flipkart even more leverage and room to improve operating margins both at eKart and Flipkart. It also provides a hedge to Flipkart’s investors—value has been ring-fenced into a profitable entity that doesn’t face a threat of assault that may emerge from the Amazon-Alibaba combine.

However, as logistics in India becomes sophisticated, it will involve more capex, automation, technology and resources. So let’s state the next point: spinning off in itself is no guarantee of success. If eKart has to compete in the market and raise resources independently, the moment we have a new set of shareholders and the contract with Flipkart becomes one of arm’s length, one of the businesses will have to suffer margin contraction since eKart’s biggest gain comes from the leverage of Flipkart’s business (synergy). And Flipkart’s shareholders will want the value to be captured by them, either via equity or preferred terms of business. There is massive competition in the space. And if China is any example, it will be many years before the logistics market matures and throws up a few successful players.

Unwieldy size: Imagine you order a battleship and the shipyard delivers you a fancy, large luxury cruise liner—fitted out with heated swimming pools and saunas versus gun turrets, missiles and torpedoes. What war will you fight? That’s what has happened here. Flipkart has built a cruise liner, not an armada of nimble battleships. Over 35,000 people run the ship, adding to overheads that a competitive “take rate” (the commission a marketplace charges on the goods and services sold through its platform) won’t support. The most successful retailers in the world from Walmart to Costco to Amazon are first known for one single virtue—frugality.

What war will you fight? The most successful retailers in the world are first known for one single virtue—frugality.

As one of Amazon’s 14 Leadership Principles states, “We try not to spend money on things that don’t matter to customers. Frugality breeds resourcefulness, self-sufficiency, and invention. There are no extra points for headcount, budget size, or fixed expense.”

This cardinal principle was thrown to the winds at Flipkart and replaced instead with free lunches and trend-setting paternity leave. Successful retailers watch every single penny, every wasteful transaction and every returned product. They are on a constant feverish hunt to cut costs and find efficiencies. This bad behaviour has come back to bite. We all know what happens to fancy cruise liners, don’t we?

“Confusion in battle is what pain is in childbirth—the natural order of things.”

— General Maurice Tugwell

Compounded by a bigger issue—leadership

There are other points where Flipkart has stumbled but let’s attack the elephant in the room. Leadership.

This mega-ship was torn between the agendas of the founders, as this piece in Mint talks about eloquently, and the Silicon Valley hires. The internal conflicts and uneasy tugs of war over decisions led to a point where the company hasn’t shipped out any innovation for the past two years. The team spent time basking in media glory, appearing for events and angel funding than readying themselves for an inevitable assault by Amazon. It was clear that Amazon, having lost China, will adopt a take-no-prisoners approach in an unrestricted Indian market.

Amazon, having lost China, will adopt a take-no-prisoners approach in an unrestricted Indian market.

Meanwhile, at Flipkart, the core team went asunder—over half of the key managers have left and have been replaced by consultants and smart analysts, not veterans of the retail business. There is a reason why Silicon Valley-returned managers (not techies) have a tough time settling in. Granted, they are smart people. But they are used to dealing with homogenized audiences in the West and this is the first time they are coming in contact with the chaos that is India, the diversity that comprises its consumers and the work ethics that create its organizations. That takes some getting used to and time is something Flipkart does not have.

It’s not Flipkart alone: Flipkart’s story is playing out in several other startups, especially e-commerce. Snapdeal is in the same boat and will have to restructure to survive. Both will have to cut thousands of jobs, roll-back their humungous media budgets and restructure their businesses. This will play out against the backdrop of Amazon and the Alibaba-Paytm alliance gearing up for a second assault.

Another company, Inmobi, seems to be in distress and there is an eerie silence on the fate of Miip. Miip claims to be a game-changing innovation in the mobile commerce space. However, the glut of mobile inventory simply leaves too little on the table for intermediaries who have to compete with the intelligence-cum-traffic offerings by Google and Facebook.

Startups that were wasteful now face an existential crisis. They can’t “grow their way out” of the problem anymore, since investors have lost nerve in the face of the reality that unit economics in India in the B2C space may continue to be challenging for many years. Most VCs invested without thinking about India’s unique landscape and I wrote about this in my article The fault in our startups in January. China saw an unprecedented e-commerce boom. But that accompanied an unprecedented boom in the disposable income of Chinese consumers as well. Until that kind of disposable income expansion takes place in India, I don’t see how anyone will be able to turn in a profit and grow at the same time.

Startups that were wasteful now face an existential crisis. They can’t “grow their way out” of the problem anymore

Consumer internet startups find it difficult to navigate slowdowns. Traditional companies usually recover from these cycles. But technology-led companies, they simply go bust. They have very little consumer loyalty to start with. Most bribe consumers to grow rapidly and cutbacks cause them to implode. It becomes a house of cards with dreams of ESOPs disappearing like dew on a hot sunny Indian morning. This has played out in several businesses like fab.com, Homejoy and closer home in Fabfurnish that was sold for cash-in-the-bank (i.e. the value ascribed to the company was zero) after raising $30 million. Veteran Silicon Valley venture capitalist (VC) Bill Gurley wrote about this last week and it is uncanny how it applies to the craziness we have seen in the India market.

Most founders have never faced a crisis of this kind before. They’ve been blissfully building in hopes that transaction volumes and traction will get them their next funding rounds. Profit and loss statements, cash flow, downsizing and re-structuring operations are alien ideas. Even most VCs don’t have teams that have seen acute business cycles like the ones with grey hair like me saw in 1991, 2000-1 and 2008. It’s unchartered territory for the teams that have to suddenly grapple with demands from their VCs to “turnaround” the business metrics.

Another point: The rhetoric seems to have suddenly shifted to “breakeven”. Every startup has announced its intention to become profitable. Breakeven is not the goal for a startup—not at this stage in India. Another 100 million consumers will join the internet economy in the next two years. Stop investing and you could win the battle, but lose the war. In my role as a private equity investor, I end up seeing at least one mid-stage consumer internet deal a month ($100 million plus in GMV) and the founders pitch how they will breakeven. My focus is not on their breakeven, but whether the firm is leveraging the natural advantage the internet and mobile offer to create a wedge in a market and profit from that wedge. Unfortunately, some founders are so focused on GMV and consumer acquisition cost that they spend little time using data analytics, social media, consumer delight, and referrals as the key to creating sustainable unit economics. I have talked about this in my earlier piece, Your startup is dying.

For startups that can demonstrate sustainable metrics, investors will be happy to continue funding the cash burn. The internet boom in India is starting to take off; it is not at the end. Billions of dollars are waiting at our shores—the dry powder with Indian VCs alone is over $2.5 billion. It just needs to see sensible businesses and level-headed teams. The internet clearly is a winner over the older ways of conducting business in India. Question is, are you able to demonstrate and exploit that inherent advantage, or is your business built on an edifice of customer acquisition costs that have no pay-offs?

For startups that can demonstrate sustainable metrics, investors will be happy to continue funding the cash burn.

[The very culture that made Flipkart a runaway success in the first phase of its existence is now hindering its progress. The internal conflicts over decisions have led to a point where the company hasn’t shipped out any innovation for the past two years. Photograph by Hemant Mishra - Mint]

Coming back to Flipkart: Let’s get valuation out of the way. A downround is inevitable and an IPO is impossible. Flipkart has to get through rough weather and emerge as a robust, vibrant organisation which is not under continuous siege, internally and externally. So what should Flipkart do?

"You, you, and you … Panic. The rest of you, come with me."

— US Marine Corp Gunnery Sgt.

Back to basics

Take the hit and forget chasing GMV. It’ll be a few media headlines for a few days. So don’t waste money chasing a “vanity” target. Find new metrics. Shrink to become stronger and create deeper and more meaningful experiences for customers. Reduce dependence on smartphone sales. Inspire customers to shop regularly instead of trying to sell phones to a person who goes bargain hunting for a phone once a year—they bleed you.

In times of crisis, lack of clarity and focus on decisions kill organizations faster than the external world can. You need to focus on delivery. Your actions should speak more than the public relations (PR) department. Lock down and huddle with your leaders and get back to basics. Play to your strengths. You have years of experience and knowledge of your consumers.

In times of crisis, lack of clarity and focus on decisions kill organizations faster than the external world can.

Create a command room: Democracy is the worst way to manage in a crisis; but democracy runs in the veins of these new-age startups. The instinct is to call entire teams into a room and throw a problem at them. In a crisis, you have to run counter to these instincts. You need to create an army command centre, a few people, hard decisions, and ruthless execution. You don’t need 100 things to do on a sprawling agenda. You don't need every intern to give you a new idea a day. Engage with the troops and galvanise them around key priorities. The leader now needs to be seen, front and centre with the teams, not with the media.

Democracy is the worst way to manage in a crisis; but democracy runs in the veins of these new-age startups.

Take deep cuts: A slow and lumbering restructuring can drown morale and spread panic. It’s better to craft a plan, take a deep cut at one go and put the rest of the organisation out of agony. Cut away all the extraneous stuff that doesn’t matter to the consumer experience and marketplace. Amazon wrote the playbook for e-commerce 15 years ago—just follow it to a T. Free up those resources. Crisis usually brings clarity since you focus on the essentials to survive. Simplify the organisational structure—and make strong, confident moves.

Overhaul the product: Flipkart was the benchmark for a seamless buying experience until two years ago. It has lost that mojo. The team needs to get it back. It has to think and act like a guerrilla now—nimble, agile and use its knowledge of the landscape to win. Millions of Indians are first-time buyers online. Flipkart needs to capture them earlier in their journey and aim to engage them earlier into the decision process in a uniquely Indian manner. Come in before people start noticing they need to get summer outfits or replace their smartphones or cars. Inspire them to explore and give them the tools to make a decision. Create buying guides in video and regional languages directly or via collaboration with other platforms. Launch new categories that grab consumers’ attention.

Payments: That will stay a bugbear. It’s imperative that Flipkart crafts a payment and loyalty system and find a way to cut down cash on delivery and returns which suck profitability. The cashback strategy of Paytm has been an eye-opener and Flipkart will do well to follow fast.

Reward the loyalists: The 20/80 rule holds true in ecommerce—20% of Flipkart's consumers probably give them over 80% of the business. But there is nothing special for the loyalists. I am a member of Flipkart First but I don’t feel any love—it pales in comparison to the near-instant shipping “Amazon Fulfilled” provides. Amazon is gearing up to launch an Indian version of Amazon Prime (a service that bundles free delivery with unlimited video content for a fixed price and has proved to be a money spinner for Amazon). Flipkart First needs a rethink—and should be the spearhead to launch new categories of products and services and innovate on consumer credit.

Spin the flywheel: Horizontal e-commerce players are not designed to make money off their core business—that of matching buyers and sellers on their marketplace. That means that the marketplace needs to run as a highly-efficient “nil margin” operation and deliver the benefits of scale to its customers. That’s how Amazon and Alibaba do it—it keeps competition out and keeps the moat intact. Money is made off services that they provide to the ecosystem—logistics, payments and advertising. And from continuously finding new ways to adding new categories. I had discussed some of this in my earlier piece, The Mahabharata of Indian internet unicorns. Flipkart has a massive user base and should drive down costs to the barebones. If it becomes the most efficient player in the market, its position can remain intact and it can then use the base of consumers and think like a network. Advertising, new product launches, services, payments, online-offline partnerships are all ways to make money and deepen Flipkart’s moat.

“The purpose of war is not to die for your country. The purpose of war is to ensure that the other guy dies for his country.”

— General George S Patton

Last words

The battle won’t be easy. Amazon will unleash Amazon Prime, Amazon Fresh and may even partner with offline retailers to consolidate its position as the default destination for online shopping. Amazon has rapidly scaled up its seller ecosystem and outstrips Flipkart today in several product categories. It has a chance to win India—and that is being handed over on a platter thanks to the internal confusion at Flipkart. Amazon is here to play a 20 year game—and any fumbles will cost competitors heavily.

Now imagine the Flipkart investors’ dilemma. They’ve poured in over $3 billion and own over 80% of the company. They are neck deep in a business that is burning $50-70 million a month and has to get ready for the next phase of battle in the market. If the cost-cutting moves misfire and market share starts to shrink, the founders could very well put a request for another $500 million for the fight against Amazon. What will the investors do? A new investor is unlikely to step in. Even though the Chinese e-commerce players like Alibaba are waiting in the wings to swoop down on prized assets in India, there's a chance that they could choose to wait out this stage of the company’s evolution—why buy and restructure, when you can wait and buy a cleaned-up asset? Hence, one of the current investors will have to lead the round and it will put serious pressure on the team to show results. It could insist that the company brings in a global e-commerce veteran to guide the business operations and ask the founders to move into roles that are more visionary.

What’s clear is that the firm needs is a bunch of solid, experienced, execution-oriented professionals with years of retailing experience under their belt. People who are sharply focused on execution and cost efficiencies. A lot of value can be squeezed out of the current operations. Folks who build technology companies may not be the best people to run them with ruthless efficiency. It requires a rare mix of rigour and creativity to do that.

Flipkart has a last chance to redeem itself and take control of its destiny, else it will become another victim of early success. It is too big to fail and the market opportunity is too large to ignore. India will have more than one large e-commerce player—just the sheer potential of the market will keep it from consolidating for many years—and so, Flipkart’s existence is not in question. But the next few months will determine the destiny of the company. The A-team cannot afford to flounder so early in their journey.

Editor’s Note:

The data and misinformation on the e-commerce market in India can create a lot of confusion. Haresh Chawla debunks Morgan Stanley's data and forecasts as well as other myths surrounding India's e-commerce market in this follow up piece: "Indian e-commerce: Misled by bad data". He expands on points including conflicting market data, traffic and installs, the metrics that count, why app-only was a costly move, and more.

What do you think Flipkart should be doing to regain its momentum? Share your thoughts with us in the comments section below and engage in a conversation with our contributor Haresh Chawla.

Comments

It's extremely well written and in-depth article. This is the problem with most of the e-commerce companies in India. I have read a recent story : It has an innovative model which is about engagement and not discount:http://xingmagazine.com/raincan-online-e-commerce-pune-startups/

ThanksSubhash Kumar

Rahul Sharma on May 01, 2016 4:04 p.m. said

Hi,

I would like to share a few experiences being a retailer and ecommerce seller. Firstly there was no planning from flipkart when it decided to get into the electronics business from its core business that was to sell books. The main difference being.

Books Business :1) Works on over 50% Margins2) No organized retail network exists for this category.3) Is a low GMV business.4) MOST IMPORTANT: No problem with dead inventory there is no erosion of purchase price, (So if they purchased a book in 2013 for selling @ 100/- Rs with M.R.P of 300/-) in 2016 the selling price of the book will still be 300/- so there is no purchase value erosion.5) There is no reduction in selling prices over a period of time.

Electronics Category:

1) Its a highly volatile business where customer requirements change quite soon.2) Huge inventories need to be maintained to have fulfillment capabilities.3) Tax rates vary from state to state.4) Pilferage during shipment rates are quite high.5) The prices fluctuate greatly so a phone that was selling for 30000/- could be selling for 15000/- in a few days, there is a price protection of only 7-15 days given by the brands for mobile phones.6) There is a huge competition from refurbished and parallel imports market.7) Demand cannot be predicted for electronics thats why they had to introduce flash sales to have some kind of sales guarantee.8) Its a high GMV business but inventory costs are huge and its a mostly cash and carry business.9) Customers find it highly inconvenient to buy products like A/C's and Refrigerators online because of the delivery challenges and timelines.

These drawbacks were not planned by flipkart before their foray into electronics because of which they took a huge hit in their profits.

As a ecommerce seller I would like to mention that I sell on all the market places in India. I find Ebay the most convenient market place to sell my products with amazon coming a close second, snapdeal coming third and flipkart coming a very distant fourth.Flipkart is the least preferred market place by my selling team because of the following reasons:

1) Extremely badly done seller panel.2) No IOS seller app.(Seriously...)3) Returns are about 35% of all sales which is the highest of all the market place.4) Seller support is the worst in the entire industry (Amazon being number 1)5) Extremely bad sales reporting software.

Based on all of the above I predict that flipkart will either change ownership or stop existing within the next 3 years.

Anand Modi on Apr 30, 2016 5:17 a.m. said

According to me all the ecom companies now have to focus on adding value to customer which is much more than providing steep discounts .

Companies like FK have got a large db of customers, so now the focus should be on to get the repeat purchase from these customers rather than blindly spending all the marketing money on customer acquisition

Vivek Abraham on Apr 27, 2016 12:03 p.m. said

Disagree with the opinion that Flipkart is only focussing on Smart phones for bumping up GMV. Flipkart individually (without including Myntra) is the market leader in Fashion ecommerce. Far far ahead of the likes of Amazon or Snapdeal. All projections suggest that Fashion will be the largest part of the horizontal ecommerce pie by 2020. Winning in Fashion/Softlines is critical to winning this battle.

User experience for fashion on Amazon is very poor, quality of products/sellers even worse so. It would have been far better to analyze Flipkart without a colored pro Amzon/anti-Flipkart lens.

harish shanker on Apr 27, 2016 11:58 a.m. said

Spot On from Mr. Haresh! Every point in this article is spot on and that's what you expect from a seasoned investor. Flipkart and Snapdeal both shot too fame too soon their valuations increased too soon (thanks to the soo called metric GMV) concentrated too much on the media theatrics. For any company to generate any value it must have cash flow...unfortunately for Snapdeal and Flipkart its not the case and something tells me it will never be. I agree with with Mr. Haresh that something needs to be done very soon by these 2 companies if they have to survive in this fast changing internet world. But will they? I dont think so...reason EGO. Both Flipkart and Snapdeal promoters have become soo ego centric that they cant see the end of the road - Sometimes opening your eyes may be the most painful thing you have to do. They both are busy putting banners after banners, tweet after tweet in quest to demean each other and their brands.On Strategy point I believe the company is happy with increasing GMV while the need for positive cash flow has been ignored, and in quest to win more customers cost have been jeopardised and some unwanted decisions like App only have been made and the biggest sacrifice they are making is Shareholder Value. If the company can't be cash positive how can they generate any shareholder value, how can they offer existing investors exit? The only option seems to be IPO in Nasdaq or NYSE, but a market as mature as USA might not lap this opportunity and if they have to then they need to show ability to make cash which currently they aren't.One thing which used to stagger me the most though is how come soo many seasoned investors and top PE funds can't see this fact which even common man can see that by valuing a company on GMV its not making any progress. Then I came across the term FOMO investing (Fear Of Missing Out) It seems like this fear has encapsulated everyone and they are just diving in to have a piece of the pie ignoring the fact that by having the pie they could end up having an upset stomach.The only way for Snapdeal and Flipkart now is like what Mr. Haresh points out take a few steps back realign its goals and targets and they go for the kill again...this might come with its drawbacks but would be the most sensible option as dialogue for a famous Hindi movie goes...sher jab do kadam piche leta hai...to jhapatne ke liye...nahi darr ke (when a tiger takes 2 steps back its not by fear but to attack).But the real question is CAN THEY and WOULD THEY be allowed to?

StonKraft StonKraft on Apr 27, 2016 9:16 a.m. said

Bang on. I loved the strategies given by Haresh sir for Flipkart revival. I ,as a seller on both the platforms, can see remarkable differences between the two. Slowly all online seller community realising that Flipkart won't be no 1 in GMV. All online sellers are loving Amazon for transparency and quick turnarounds for sellers grievances. Flipkart is a very closed marketplace with too much of regulations. I, as a buyer, stopped buying from Flipkart for last 15 months as I found value for money on Amazon for all items (except Mobiles).

Rishabh Chawla on Apr 26, 2016 9:28 p.m. said

Created an account on Founding Fuel ONLY to say that every single Haresh Chawla article I have read here is so insanely insightful, it's crazy. Easily in the top five industry articles I've read in my life.

Keep on keepin' on!

Hari Rastogi on Apr 26, 2016 6:14 p.m. said

One f the best article I have read i my life. Flipkart must immediately hire Mr. Haresh Chawla as a consultant and next few start up CEO in their leadership team. Startup CEOs know how to cut cost, manage fight with giants, manage with minimal resources, speed and agility. Flipkart has to cut it's flab and no other way out.

Fermin Sanz on Apr 26, 2016 3:15 p.m. said

Haresh, what a great and deep lecture. I enjoyed as well and share to colleagues. What do you think of the flipkart mobile app delivered to low tier mobiles. the Progressive web app, that is light, and easy to use to poor consumers? Did it benefited flipkart by widenning it's consumer base or just get unnoticed under the pile? Thanks,

Bibekananda bishoyi on Apr 26, 2016 2:07 p.m. said

Mr Chawla , really nice and detailed insight from you. Kudos ! From a user/ customer point of view regarding online shopping.I stay in mumbai .Last year I bought a TV and a fridge.This year I bought an AC.Like any other customer I searched it over online.But in both the case I bought it offline.Reasons I choose offline was :1) I went Kohinoor to check the offerings and they offered discounts any online player (amazon was not too active in that time).2) recently I bought an AC. the brand(carrier) and choices I was looking for not available in any major online players apart from croma retail (here too that offer sold in a day)3) delivery period is in single day for my cases. Where as online players take 7days aprrox.4)as you pointed in your article information regarding product is lacking. Like , I want to buy an AC and snapdeal don't disclose its power consumption.2) most important is the offline retailers tied up with finance companies offers at zero intrest (yes ! Zero intrest in EMI for 8 months).

Nowadays e-commerce sites just giving price information.

Just as you mentioned about flipkart GVM , within in a year a bought two mobile phones and I bought those on online. thankBibek

Sascha Thattil on Apr 26, 2016 2:00 p.m. said

Wow, what a great article. Great many thanks to Mr. Haresh Chawla.Usually, I only read US books/ articles/ blogs as well as some from Europe.

This article though is more than world class.

I am an entrepreneur, but also a long time Flipkart buyer. I have seen my behaviour shift in the last few months to buying from Amazon, rather than Flipkart. It was actually not a conscious decision. But Amazon provides for example advertisments with pictures, when I search on Google for some specific items. And the great thing is, Amazon carries also very niche products, like Nescafe capsules. I guess it will be difficult to get those on Flipkart. This niche buying leads us consumers in the next step to also start buying more general stuff like cameras, etc. from there.

So I can agree with this article. Flipkart really needs to change some things. I guess they are still strong in cameras, laptops, smartphones. But here also, if I want to buy a camera AND a green-screen, so as to make simple videos, Flipkart usually fails to have things like that (green-screen) on offer. Whereas Amazon will give recommendations which usually are spot on.

I would really like to see Flipkart succeed, as it is a local success story. Amazon sometimes looks like a behemoth, who we cannot fully understand. Whereas Flipkart and through it, its founders give it a stronger and more relatable image.

Thank you again for the great article and giving us a chance to comment here.

Prankit Awasthi on Apr 26, 2016 1:52 p.m. said

As their is Last mile opretaion which are the keen and promissing part at Flipkart but How easy for them to lean your concept on 80-20. As we knew FKL is started is journey with warehousing part (inventory Base) so market place model hearting them.

Krishna Dey on Apr 26, 2016 12:50 p.m. said

Few days back we tried to pitch them a product that would make consumer experience smooth. We discovered that a customer is not able to decide what to buy, reads reviews and gets confused. We told that instead of asking them to read reviews, why can't they see the text analysis of reviews in simplistic manner like we do it in www.bazaarfunda.com What i found was that they were interested in GMV rather than customer experience which according to me not only flipkart but many others find it intangible but in long run a customer experience brings customer loyalty which no discounting can bring.

Santosh Dhemre on Apr 26, 2016 9:54 a.m. said

A brilliant and thoroughly engaging article by Haresh, who true to his style, is stark, stoic and straight to the point. The guys at FK, if they are reading this, should call him up ASAP and ask him to lead a turnaround for FK. :)

Lakshmi Narayan on Apr 26, 2016 7:29 a.m. said

Great article, and Haresh brings out tons of relevant points. Im sure some of you must've read the retort by Sumanth on Nextbigwhat, the retort however hardly makes a case for a good critique. Sounds more like a personal attack on Haresh and taking affront on Haresh's real value add in terms of perspective. But id love the author and the audience to get a taste of how Flipkart's reporting of GMV overstates numbers in my own analysis based on a personal experience as recent as the last 3 months:

To put GMV in perspective: when I was buying my girlfriend a phone on flipkart, I will set out a series of examples and then allow you to see the fallacy in the GMV calculation.

Exhibit 1: I first bought a Moto X style on Flipkart. Phone value listed at 29,999, post discounts it was 26,999 and another daytime discount on it priced the phone at 23,999. I paid 23,999 but flipkart uses the 29,999 as its GMV realized on the purchase. Now this phone was returned because of a logistics screwup by eKart which would mean this should be taken off flipkarts GMV and accounted as a logistics expense as the phone was returned, but no that's not what happens, Flipkart still realizes the GMV in its reporting and the GMV in this case at 29,999.

Exhibit 2: Second time I bought an iPhone 6s 64gb, listed value at 61,999. Discounted value at 52,999 and a special daytime discount at 49,999 which I bought the phone for. The order went through and I was charged for it, but the order was cancelled by eKart because flipkart had run out of inventory but still displayed the phone as available. I escalated the issue and fought with the Social media team about it, being the second experience in as many days. The social media team were actually dumb enough to ask me to purchase the phone at a higher price as WS retail were out of stock and further claiming that the inventory database is outdated and wasn't updated fast enough which is a load of bulls**t. Inventory and warehousing databases are automated and being a tech company you'd think they'd have this under control. (Clearly reeks of a GMV boosting play here, you allow over ordering, realize GMV and cancel the order which doesnt reflect on GMV. You may argue that I have a bias here but this happened twice, and calling it coincidence is an eye wash to divert attention from the real thing). After prolonged negotiations, flipkart finally accepted my demand to refund the differential value of the prevailing purchase price to me so that I could re-buy the phone. This constant/ annoying to and fro went for over 7 days and finally they accepted my demand. My demand wasn't anything absurd, I purely asked Flipkart to make good on the price I purchased the Iphone 6s for, I dont think thats too much to ask when youve created the expectation to the customer that you are willing selling the phone for that price. Some of the social media team people had the audacity to ask me to purchase the phone at a higher price from another retailer! How can customer service be so poor that they would go to the extent of asking a customer who just got screwed on a Rs 49,999 purchase because of Flipkarts fault and then ask the customer to pay a higher price! This was ridiculous and I took them to task on Twitter. The point here is; as I used to stay in the US, most purchases were on Amazon and if there was a problem such as a lost item or defect, you have the option to get a refund or a new item immediately. No questions asked. Even in India on my Amazon orders, any problematic order is dealt with an underlying ethos that the customer is always right, flipkart however functions in the opposite way. They try to extract as much as they can from the customer knowing that they've screwed up my past 2 orders. I cant fathom how customer service can ask a customer to buy an item at a higher price when Flipkart had sold the same item to the same customer at a lower price. Although the acquiesced to my demand of Flipkart handling the differential in price, I shouldn't be going through a series of mind bogglingly ridiculous conversations for 7 days before actually getting what is fair. Thats not what customer service is and I dont think anyone would disagree on that. ( A little rant on the customer service)

Coming back to GMV math, In Exhibit 2: They booked a GMV of 61,999 on the iphone 6s but didn't account for the discounts or the return again.

Exhibit 3: Third time I ordered the iPhone 6s 64gb, I got it at 49,999 but got delivery of the phone this time.

Add all 3 cases Flipkart GMV on one customer alone is 29,999 + 61,999 + 61,999 = Rs 1,53,997 but the actual value realized from the transaction is 49,999 which I paid for the phone which actually makes it to flipkarts bottom line and the wrath of the customer to never shop on Flipkart again.

You get the picture on how untrustworthy GMV can be on a single case. They're promoting returns now through large scale PR and advertising, which furthers my case against GMV, the more customers who return the larger their reported GMV would be.

Now lets put this in persepctive. Flipkart makes over 50% of its GMV from mobiles, GMV of 5 billion in 2015 of which 2.5 billion is mobile.

My case maybe an exception with 300% GMV against a single actual purchase but if you apply a correction factor on the GMV of mobiles sold to account for discounts (15% on every phone) and 10% on returns, the GMV now becomes 2.5 billion * .85* .9 = 1.9 billion. That's 600 million dollars of reported GMV with no underlying asset. I feel like my 15% and 10% is a conservative estimate and quite possibly could be more. This gives you an idea about GMV. This gives a bigger picture about the unsustainability and fallacy of GMV as a metric.

More than GMV focussed selling, its Flipkart's customer service which needs to be prioritized. You may question my motive to continue to stick to flipkart after the second purchase of the iPhone 6s, but I was forced to buy it as the price differential of over 3k was stuck in my flipkart wallet. But post this transaction, I'd rather pay a higher price at Amazon purely because I trust their customer service to do the right thing.

Bhuvan thaker on Apr 26, 2016 6:31 a.m. said

Why is Haresh Chawla so much in Pain? I found this article interesting - https://www.linkedin.com/pulse/stop-blaming-unicorn-founders-prajakt-raut?trk=hp-feed-article-title-publish

Extremely well written article. IMO the real crux of the problem is the rush to "copy" the successful models of the west (Amazon, Uber, Airbnb and what not) without giving heed to the Indian demographics. The only understanding these companies could gather is that consumer wants only discounts. So they offer her a discount and she keeps coming back. Plain and simple. You create a viscous cycle which no one has the courage to stop. But what more could have been done? All these suggestions of following one course of action or the other is good to propose as an outsider, but once someone is in that train, the picture is different. Whether FK survives the onslaught or not, they have done a fantastic job to bring so much awareness among the consumers, made them digitally savvy and made them really use the phone smartly. I think a lot many companies (banks, utilities, government etc) own it to these ecom players for customer education. As far as Indian e com sector is concerned, Amazon is far ahead in terms of customer experience.

Vikram Jain on Apr 26, 2016 3:41 a.m. said

Insider Story written by the outsider. Wish you were in Flipkart to understand what really went wrong, maybe the investors will shed more light as to their contribution in the state of affairs. We are moving in more and more towards a perception clouded reality accentuated by Half truths and Hearsays. It is not the grounded reality which is well received but rather a masterful story telling.

Rakesh Ramachandran on Apr 25, 2016 5:15 p.m. said

This is one of the few articles with a pinch of salt to get a great view on the industry. I am in the startup journey and we were already aware of some of these issues in the start. We are trying to design the right model however it's a constant challenge to get the model working and innovating every time. One of the few things we are already doing on the start is frugality and efficiency. However, we get questions like the scaling up then only investors come in scenarios. We try to tell ourselves that let the right business model come up then we can think about scaling, even then scaling without density is like adding sugar to ocean. What I have also seen is huge technological footprint in businesses where the core revenue is not because of technology but actual trade. This is a good article for us to focus on so that we get some of the things right from start. Looking for my first 1000 orders as part of the startup journey without much bloodshed.

Haresh Chawla is currently a Partner at True North (formerly India Value Fund Advisors). True North is one of India's most experienced and respected private equity funds, with over $1.5 billion under management. At True North, he focuses on investments in the food and consumer sectors where he identifies and helps transform mid-size businesses.

He is best known though for his leadership in transforming the Network18 Group into a formidable media network. Under his watch as Founding CEO, Network 18 became India's fastest growing Media and Entertainment network.

In his dual leadership roles at Network18 and Viacom18, he built a media conglomerate that reached over 300 million households across platforms including television, print, films, mobile and internet.

His career at Network18 spanned 12 years, and he grew revenues from $3 million in 1999 to $500 million in 2012. He transformed the company from a TV production house to India's leading multi-media house with over 11 TV channels including Colors, CNBC-TV18, CNN IBN, MTV India and Nick India. He forged joint ventures and long-term partnerships with the world's largest media companies including NBC (Comcast), CNN, Viacom, Forbes, A&E Networks.

Haresh has also been keenly engaged in the consumer internet revolution in India from the early nineties. He is credited with building India's largest most well-known internet businesses like Moneycontrol, Bookmyshow, Yatra, Firstpost and Homeshop18. He continues is a successful investor and mentor to several internet and consumer start-ups today.

Earlier, Haresh has been part of founding teams at the HCL Comnet; ABCL, where he set up the Film Distribution Business, and at the Times of India Group where he launched Times Music.

Haresh holds a Bachelor's degree in Engineering from IIT Mumbai and a Master's degree in Business Management from IIM Calcutta. He lives with his wife and two children in Mumbai.